18 April 2016
Rates & FX Market Weekly
ECB Likely to Retain Dovish Rhetoric;
BI to Hold Off Further Easing in the Upcoming MPC Meeting
Highlights
¨ Global Markets: With April FOMC meeting just
around the corner, expect avid attention towards the various Fedspeak
(Dudley, Kashkari & Rosengren) early in the week ahead alongside the
negative outcome from the oil producers’ meeting. Flash manufacturing PMI is
expected to stabilise in April, although a strong print is unlikely to
materially influence Fed’s expectations; stay mild overweight USTs. The
highlight in EU will be the ECB meeting due on April 21, where we call for no
change in monetary policies, yet watch ECB’s Draghi post-meeting
conference to gauge the bank’s stance towards more aggressive actions; stay
mildly bearish EUR. In the UK, employment and retail sales are expected to
improve although Brexit fears may continue to weigh on UK economic prints prior
to the referendum; stay neutral GBP, with GBPUSD likely to trend between
1.40-1.45 over the near term. Over in Japan, investors remain keen
on the potential impact of strengthening JPY on Japanese exports which could
further dull the economic outlook and cement the case for further fiscal
stimulus package from the Abe administration; commitment towards the G7
bloc is likely to remain a hurdle for Japan to engage in direct intervention on
JPY over the near term, supporting our neutral stance on JPY. In
Australia, expect RBA minutes and Governor Stevens’ speech to reflect
cautiousness towards recent AUD strength; we maintain our preference towards
short-dated ACGBs, underpinned by our view for another 25bps rate cut in 2016.
¨ AxJ Markets: Lingering optimism from last week
heavy and resilient Chinese data – stable GDP, rising IP, FAI and retail
sales alongside higher CPI - could continue to ease near term expectations for
PBoC to reduce rates. We maintain our neutral duration view on CGBs,
with the challenging global outlook and the deepening onshore bond market to
remain supportive of CGB market; remain constructive on short dated CGBs as
yields continue to climb. Meanwhile in South Korea, weaker support for
President Park’s Saenuri party may place the onus on BoK to reduce policy rates
in 2Q. We see a higher likelihood for BoK’s rate cut to be in May rather
than Tuesday’s meeting, with the 4 incoming BoK board members broadly
leaning towards the dovish end; maintain mildly bearish KRW. Elsewhere,
a modest rebound on Singapore’s NODX is likely to be in line with trends seen
in the regional market, but unlikely to provide much support for SGD following
MAS neutral policy stance; expect upside pressure on USDSGD to be sustained
over the week ahead as investors claw back earlier optimism, with short dated
SGS likely to bear the brunt of the weaker SGD. In Malaysia, MYR is likely
to take cues from oil prices in the week ahead following the producers’
meeting, while CPI remains elevated on base effects where investors remain
cognisant of the pending change in BNM’s leadership; stay neutral MYR at
current levels. Turning to Thailand, demand for the THB16bn 10y ThaiGB
auction is likely to remain strong given the sparse supply on short dated
ThaiGBs alongside attractive real yields vis-à-vis its EM AxJ peers, which
could continue to support resilience on the THB over the near term; keep a
short duration tilt on ThaiGBs. BI reconvenes on April 21, where we opine
for a status quo decision as the bank signaled prudence in the last meeting,
despite a favourable March CPI print; stay neutral IDR, with movements
in the week ahead tied to oil prices as well. In India, trade data may deliver
a positive surprise in line with regional trends, although the economy
remains vulnerable to higher oil prices which may limit RBI’s ability to
support economic and credit growth; stay neutral INR.
Weekly Positioning
|
Rates
|
FX
|
Overweight
|
|
|
Mild Overweight
|
UST, C.EGB, ACGB, GSec
|
|
Neutral
|
GILT, HKGB, MGS, SGS,
KTB, P.EGB, CGB, IndoGB
|
USD, SGD, HKD, INR,
GBP, MYR, IDR, JPY, AUD
|
Mild Underweight
|
ThaiGB
|
EUR, KRW, CNY, THB
|
Underweight
|
JGB
|
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